BOJ Gov Ueda said we’re not there yet, prospect of achieving price target not high enough

Bank of Japan Governor Kazuo Ueda spoke on Monday.

Justin had the main headlines here:

Ueda was addressing a meeting of Councillors of Keidanren (Japan Business Federation). Keidanren is a significant organisation in Japan with close links to Japan’s ruling Liberal-Democratic Party. It provides advice to the government on economic issues. Last week the lobby group were on the pulpit with advice for the central bank:

More comments from Ueada from the event (headline summary via Reuters, bolding below is mine):

  • Service prices gradually
    accelerating pace of increase, though it seems many firms feel it is
    not easy to pass on rising labour costs
  • If positive wage-inflation
    cycle strengthens, and heightens prospects of sustainably achieving
    price target sufficiently, we will consider changing monetary policy
  • We can not pre-set timing of
    future policy change, but will like to make appropriate decision
    while scrutinising economic developments, firms’ wage and
    price-setting behaviour
  • In an economy where positive
    inflation is sustained, nominal rates will be high and give central
    bank scope to cut interest rates sharply when necessary
  • When monetary policy functions
    effectively, that means risk of economy worsening sharply or
    returning to deflation will diminish
  • BOJ patiently maintaining
    monetary easing to ensure signs of change in firms’ wage,
    price-setting behaviour is sustained
  • BOJ will carefully examine
    economic developments, including whether positive wage-inflation
    cycle will strengthen, and make appropriate decision towards
    sustainably hitting price target
  • Prospect of achieving price
    target gradually heightening
  • It may take some time but
    upward pressure from past rises in import prices will likely
    gradually ease
  • I am hoping Japan will finally
    emerge low-inflation environment, achieve positive wage-inflation
  • Unlikely in past phases,
    demand is underpinned by govt’s stimulus measures and BOJ’s continued
    easy policy
  • Companies’ views on medium-,
    long-term price outlook showing signs of change
  • At this point, prospect of
    achieving price target not high enough
  • Uncertainty surrounding
    domestic, overseas economy and price developments very high
  • We must scrutinise how
    companies’ wage, price-setting behaviour changes
  • Key point is whether clear
    wage hikes will continue in next year’s annual wage negotiations
  • Crucial for increase in
    corporate profits to lead to higher household income
  • Key is whether companies will
    be able to reflect rising labour cost to prices of their goods,

Ueda made positive noises, that the likelihood of achieving the inflation target was “gradually rising” and it would consider changing policy if prospects of sustainably achieving the 2% target increase “sufficiently”. Also note though that he said he is not there yet:

  • At this point, the prospect of achieving the price target is not high enough

. And there is still much assessment and discussion on the timing to come:

  • “We will carefully examine economic developments as well as firms’ wage- and price-setting behaviour, and thereby decide on future monetary policy in an appropriate manner,”

Speculation is not going away that a Bank of Japan pivot to tighter policy is imminent. We’ve been hearing the rumours for night on two years now and my current best guess is not before April. The next meeting January 22 and 23.

Bank of Japan dates for the coming year:

This article was written by Eamonn Sheridan at Source